Effective Hourly Rate: How to Stop Underpricing Your Freelance Work

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You closed a $2,000 deal last week.

You celebrated. You told your partner. You felt good.

And you just lied to yourself.

Because that number—that big, shiny $2,000—isn't real. It's a trick your brain is playing on you. Behavioral economists call it the Money Illusion: we fixate on nominal values (the number on the invoice) and ignore the invisible costs that erode them.

Here's the truth: You're not celebrating revenue. You're celebrating salience.

The $2,000 is salient—it's visible, concrete, emotionally satisfying. But the taxes? The admin hours? The revision hell that's coming in two weeks? Those are low salience. Your brain doesn't weight them equally. So you optimize for the wrong number.

And here's where it gets dangerous.

You think you're a business owner. But if you don't know your Effective Hourly Rate (EHR)—the actual dollars you retain per hour after taxes, overhead, and the hidden time drains—you're not running a business.

You're a Discount Employee.

You've taken on 100% of the entrepreneurial risk (no benefits, no PTO, no safety net) for a wage that—once we do the math—might be below minimum wage.

So let me ask you a question:

Does a $2,000 Deal Really Break Down That Badly?

Or am I just being a pessimist?

Let's check.

Yeah.

So that's the math.

You thought you were charging $200/hr. You were actually working for $37/hr.

And here's the thing—I know this breakdown is real because I used to do this to myself. For years.

The biggest mistake we make as Solopreneurs isn't our skill level. It's our contract structure.

In financial markets, a "Call Option" gives someone the right to buy an asset at a specific price, no matter how valuable it becomes later.

In the creative economy, most standard contracts accidentally give the client a Free Call Option on your time.

When you sign a flat-fee deal without strict boundaries, you are effectively telling the client: "You pay me $2,000, and you own my attention until you are satisfied."

That creates a misalignment of incentives:

Since they hold the money, they hold the leverage.

Every "quick tweak," every "can we try a different font," every vague email is a withdrawal from your profit margin.

This is why the Money Illusion is so dangerous. The $2,000 check blinds us to the liability we are signing up for.

I ran the numbers to see exactly how fast a "good deal" rots when you add just two rounds of unplanned revisions.

The numbers were terrifying.

So here's what you do.

I built a tool to visualize this risk for you. It's called the True Rate Calculator.

You input:

And it shows you your Effective Hourly Rate. No fluff. No optimism. Just math.

It runs 100% locally in your browser—your numbers never leave your device. No signups. No tracking.

Once you see the math, you realize: you must cap revisions.

This isn't about being difficult. It's about being honest. You can't subsidize your clients' indecision with your unpaid labor.

I use HelloBonsai for this. This isn't just "software"—it's an operational firewall. Their templates let you define:

Here's the shift for 2026.

You are not a "service provider." You are a factory.

You produce assets. And every asset you produce has a cost structure: time, attention, overhead, taxes, and the invisible drag of operational debt.

If you don't price for the Hidden Factory, you're not running a business. You're running a charity. And your clients are the only beneficiaries.

Go calculate your True Rate. Then defend it.

Don't just scale. Build a machine.

— Scott

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